Attack of the Pseudo-Economists

By: Contributor - Feb 5, 2015, 8:35 am

EspañolBy Adrián Ravier

In my professional opinion, university programs for the social sciences and the so-called hard sciences should both include a component involving economics. After all, graduates of whatever stripe invariably go on to be part of one market or another, and they shouldn’t be alien to its dynamic, or without a minimal understanding of how its prices are formed, and the consequences of state interventionism.

Beyond economic logic, the liberal economist is concerned with returning the wealth extracted through taxation to the pockets of those who generated it. (Wikimedia)

Numerous laws and principles govern the economist’s worldview, but here I’m going to deal with a preoccupation adhered to by the entire profession: the necessity of implementing “consistent” economic policies, for the short, medium, and long term.

The economist shouldn’t be a populist: he shouldn’t pass measures whose benefits are only short-term, without weighing up their long-term sustainability, with the only objective being to win a greater share of popular votes.

The reader can probably think of many of my colleagues who have come out in favor of populism, but in general these economists have abandoned the profession to embrace a political career and a political party, far from the lessons they failed to learn during their training. I prefer to call these individuals pseudo-economists, for while they have a university degree, they work against the consensus reached by the profession over centuries.

Bearing this in mind, there are two ways to evaluate the period of Kirchnerist rule in Argentina between 2003 and 2015. Some could say that excessive increases in public spending, with their short-term benefits and difficulty to prolong in the long-term, have been populist measures. However, other economists would suggest the opposite: given that the international price of Argentina’s commodity exports has consistently risen over a decade, we can safely assume that these prices will remain high, and the model is sound.

While it’s clear that this later view is erroneous, commodity prices are indeed unlikely to return fully to the levels of the 1990s, giving ammunition to those who are in favor of expanded social spending. These economists may criticize the excessive increase in spending, but not increased spending in itself.

Here’s where another concern, that of the liberal, comes in. The liberal isn’t only worried about the sustainability of the plans carried out under the populist model, but also fixes his attention on the state’s encroachment upon the market. Beyond worrying whether taxes, or exportation rights in particular, can sustainably finance public spending, the liberal is concerned with ensuring that the money extracted from a specific sector the population through coercive taxes returns to those who generated it.

I always remember the words of my professor Alberto Benegas Lynch, who argued that, all things being equal, it’s worse for a government to spend 1000 without a fiscal deficit than to spend 900 with a fiscal deficit of 50.

In the free society that liberal authors promote, money can only be obtained through a competitive process which depends on the free choice of the consumer to choose the product or service being offered, a far cry from the political favoritism that characterizes modern “capitalism.” If this money returns to their pockets, their businesses can expand, creating more jobs, widening the reach of the market over that of the state.

Yet Argentina has taken a path in the opposite to both the long-term wisdom of the economists, and the free market sense of the liberals. As a result, we’re not only seeing problems in financing the government’s multiple, well-intentioned, but populist plans, but the state has furthermore become more powerful than the market: something clearly visible when public sector job growth is compared to that of the private sector.

The next government will need to reduce public spending to sustainable levels, but also it will have to strengthen the reach of the market and reduce that of the state. To do so is nothing less than increasing individual and constitutionally mandated freedoms, taking advantage of the creative energy of Argentinean businessmen, and also that of foreigners who seek to work on Argentinean soil. Only in this way can Argentina, or any country, achieve the benefits of industrialization.

Adrián Ravier is a professor of economics at Francisco Marroquín University, Guatemala, and holds a doctorate in applied economics from Madrid’s Rey Juan Carlos University. Follow @AdrianRavier.

Translated by Laurie Blair.